Taxes That Don't Benefit You Directly Can Still Benefit You Indirectly

Apos,

As to the question of why inequality matters, Krugman takes this up on page 6 of his article: http://www.nytimes.com/2002/10/20/magazine/20INEQUALITY.html?pagewanted=6&ei=1&en=18449504d20bd065&ex=1036345863

I believe that Kevin Phillips also talks quite a bit about this in his book “Wealth and Democracy” (although I have to admit I haven’t read this yet) arguing that extremes of inequality undermine democracy. I am also reading a book called “The Winner-Take-All Society” that argues that these extremes increasingly result in inefficiency in the economy as many people vie (in ways that are not very productive to society as a whole ) to become among the chosen few.

Here’s an extended quote from that Krugman article:

I generally like Krugman, but he’s just not giving this argument the weight it needs. He makes the argument that high incomes is unproductive… but he has yet to really explain why that case is solid.
And, more fundamentally, he talks as if the “price worth paying” is worth it… without any discussion of whether or not that “price” is something that’s up to society to choose.

My opinion is Nozickian. “Society” doesn’t have an income to “distribute.” Income goes to individuals. “Society” doesn’t decide how much various groups of people get paid for the work they do: their employers do. Society might lay claim to some of that income for various reasons, including government services, but that doesn’t make the income “societies” in any meaningful sense.

Apos,

You sound as if “the rules” for our highly complex and interactive society were set down by God. We have chosen these rules…modern capitalism complete with the limited liability corporation, patent law and so on. To then say that we can’t look and see whether we find the distribution of wealth that comes out of this to be acceptable seems kind of preposterous to me.

jshore, and isn’t that Krugman’s major point in the article? That economic action isn’t separate from social action, but in fact economics is a form of social action? And that Adam Smith’s “invisible hand” includes the more or less deliberate revision of norms by society rather than exclusively containing the [theoretically] self-correcting automechanism of “the Market”?

Or am I reading Krugman wrong?

Tax cuts that don’t benefit you directly can still benefit you indirectly.

There just isn’t any way that the taxes paid by the tox 50% are effected similarly by tax credits and susidies.

**

I hate to say it, but I am going to need a cite on this. I just don’t believe it.

**

Not quite. Having a progressive system of taxation is not the same thing as the IRS leveling the playing field. As the richest households in America have increased their wealth over the past decades, they haven’t had a corresponding tax increase. Because of the stock market downturn recently many families have had their net worth decrease dramatically. Should they be entitled to lower taxes now?

**

Your reasoning is flawed.

If overpopulation is harming the environment, and if random sterilization at birth of all babies would decrease the levels of overpopulation then there is obviously an indirect benefit to random sterilization of babies, even if you personally don’t find it morally acceptable.

We can’t just throw morals out the window in order to make things “fair”.

Agreed.

**

I realize that even with a flat tax the “poor” (lets say bottom 50% still) is not going to be paying anywhere near half of the taxes. This makes sense, because they don’t make anywhere near half of the income. But, for them paying next to nothing (4%, which is given back in rebates) just isn’t right. Why not always vote to increase spending for every government program, if you aren’t paying anything towards it? If a government project like the Big Dig here in Mass is way overbudget, why should they care? It’s not thier money, no big deal. It is bad for the country for half of the people to be getting a free ride. Even if the amount that they contribute is marginal, it should be something, so they have something at stake in government.

**

And we also have to talk about the OP of this thread. That people who pay the high taxes don’t receive corresponding benefits. If a stockbroker who makes $400K a year is driving down the highway to work, sure his taxes helped pay for his portion of that highway. He also paid for the usage for many others who are getting a free ride (quite literally). He receives no benefit from the carpenter in the car behind him who is also using the highway. Who’s income puts him in the bottom 50% of earners and didn’t pay any taxes that year.
**

FTR, Jshore said this, not me.

Debaser replied to me: *“income/wealth inequalities have skyrocketed precisely while the top marginal tax rates have been slashed (from over 70% in the 1970’s to less than 40% now).”

I hate to say it, but I am going to need a cite on this. I just don’t believe it. *

Fine, but I’m surprised that you’re not familiar with these two trends: this is pretty much common knowledge.

Excerpted from [www.taxpolicycenter.org/TaxFacts/overview/..%5Ctables%5Coverview%5CDistribution%5CPDF%20Files%5Ctoprate.pdf+top+marginal+tax+rates+1970+2000&hl=en&ie=UTF-8"]list of top marginal tax rates](http://216.239.51.100/search?q=cache:1sIUPZNFQSUC:[url) (warning, this is an html version of a PDF file: if the link doesn’t work, look for www.taxpolicycenter.org/TaxFacts):

1950–1963: 91%
1964: 77%
1970: 71.75%
1980: 70%
1981: 69.13%
1982: 50%
1987: 38.5%
1988: 28%
1990: 31%
1993: 39.6%
2001: 38.6%

For rising income inequality over the same decades, check out this article’s many handy charts of the Gini index (a measure of income inequality) and other inequality indicators. It shows that in the period 1973–1996, net income increase for the poor was 0.7%, for the middle class 2.6%, and for the rich 49.8%.

Yes indeed, dropping tax rates and rising inequality have been coinciding over the past several decades. That doesn’t prove, of course, that the tax cuts were the cause of the inequality, because correlation isn’t cause, but no-one can deny that the correlation is there.

If overpopulation is harming the environment, and if random sterilization at birth of all babies would decrease the levels of overpopulation then there is obviously an indirect benefit to random sterilization of babies, even if you personally don’t find it morally acceptable. We can’t just throw morals out the window in order to make things “fair”.

Well, you may feel that taxing the rich at a higher rate than the non-rich is a moral atrocity on a par with randomly sterilizing babies, but I’d say you’re pretty much in the minority on that one. Most of us think it’s morally quite reasonable to pay a higher percentage of our income in taxes than our poorer neighbors do, and equally reasonable for our richer neighbors to pay a higher percentage than we do. So since there is no general moral consensus against progressive taxation (just look at the pitiful performance of presidential candidates like Steve Forbes who advocate flat tax rates), we are free to consider the issues of practical benefit and disadvantage without worrying that we’re throwing the nation’s “morals out the window.”

*If a stockbroker who makes $400K a year is driving down the highway to work, sure his taxes helped pay for his portion of that highway. He also paid for the usage for many others who are getting a free ride (quite literally). He receives no benefit from the carpenter in the car behind him who is also using the highway. Who’s income puts him in the bottom 50% of earners and didn’t pay any taxes that year. *

Actually, since a $400K-per-year stockbroker is quite likely to hire a carpenter, or other service professionals and contractors, to work on (one of) his residence(s), I’d say that yes, it benefits the stockbroker for the carpenter to be able to get around on the highway.

See, the more resources you use in your activities, the more dependent you are on greater numbers of other people to supply and process those resources. People who spend lots of money on servants, contractors, etc.—as well as wealthy employers who hire lots of employees—rely on the fact that those who work for them have access to enough education, transportation, health care, retirement benefits, and other sorts of infrastructure to enable them to perform their jobs adequately at a modest cost.

If there aren’t enough non-wealthy people with sufficient education to carry out a basic job, or enough mobility to get between home and workplace, or enough spending money to buy consumer products, it becomes a lot harder for wealthy people to make more money. That’s one of the reasons why tax subsidies for the poor are indirectly beneficial to the rich.

Two points I’d like to make here:

First, be very careful when defining morality by majority rule. 200 years ago, the majority thought that black should be enslaved, as they were sub-par. That doesn’t make it moral, that means that the victims in question are out-numbered and have little say.

Second, the reason most people believe it’s okay to tax the hell out of the rich is that most people aren’t rich. Uncle Sam gouges the wealthy, and showers the poor in subsidies and welfare programs - what’s to complain about, if you’re on the receiving end?

Jeff

Debaser, now it sounds like you are back to the 50% pay next to nothing thing again: what gives? The bottom 50% still pay a substantial portion of their income, and have a real interest in sensible tax policy too. That the rich a much higher percentage of the total income is because they make so much more: not because everyone in the bottom 50% is rolling around in moola saved on taxes.

FTR, I know whom I was responding to in each part.

—Most of us think it’s morally quite reasonable to pay a higher percentage of our income in taxes than our poorer neighbors do, and equally reasonable for our richer neighbors to pay a higher percentage than we do—

Hopefully you’re not confusing this with paying more money in taxes period: which would STILL happen even if you didn’t pay a higher proportion of your income in taxes. What I want to know is how THAT can be justified: the higher proportion as opposed to just a higher amount based on the fact that your income is much more.

What bothers me is that redistributionists have absolutely no measure for exactly how much it is “moral” to take, and why. You have no ceiling at which one can say “okay, I’ve paid the sum of my social obligations in full this year.” Instead, taxes are just always “too low.” If you had some reasoned pricinciple, you could give us a figure. So, what is it? And how did you come to that figure? Using what “moral” principle?

Further, if you desperately want to pay more taxes: what’s stopping you? If you think that it’s wrong that you are so undertaxed, then by not donating money to the Federal Reserve, you are being exposed as a hypocrite: you want others to be forced to pay more than they want, but you aren’t willing to take that step yourself unless they are forced to too as well. What kind of “moral” principle is THAT?

Kimstu, there’s a big gaping hole in your story about carpenters and the rich and so on. That is, if carpenters didn’t have all those benefits, if their jobs and educations and so on were much harder and more expensive… the “rich” would simply have to pay them more for their work, covering in proportion all the hidden costs of production, transport, education, etc. So it’s not clear at all that by taxing the “rich” and then paying carpenters enough to afford all those things the “rich” would otherwise have had to pay extra for, that you are actually benefitting anyone, especially if the tax is inefficient (as almost all taxes are).

And at least that would be a choice, rather than a gun to the head.

EJ: *First, be very careful when defining morality by majority rule. 200 years ago, the majority thought that black should be enslaved, as they were sub-par. That doesn’t make it moral, that means that the victims in question are out-numbered and have little say. *

True, morality isn’t defined by majority opinion. However, the existence or absence of a moral consensus on a particular topic determines whether or not you can assume that most people share your individual moral views. If Debaser wants to assert that progressive taxation is immoral, then since most of the rest of us don’t believe it’s immoral, his assertion isn’t going to carry any weight unless he can actually convince us to agree with him.

Second, the reason most people believe it’s okay to tax the hell out of the rich is that most people aren’t rich.

You seem to have missed the part where I pointed out that plenty of us also think it’s okay for our own taxes to be higher than those of poorer people. If, as you suggest, it’s all just about greed, then how do you explain that?

Also, I could easily retort that the reason people of your viewpoint argue against progressive taxation is that they’re selfish and callous. But I think that that kind of reduction of arguments to interested personal motives—“You only believe A because you’re grasping and greedy!” “Well, you only believe not-A because you’re selfish and callous!”—is pretty tedious and not very illuminating. I prefer to believe that most people are doing their best to reason honestly and fairly according to their lights, and the chief point of debate is to explore how and why honest and fair people can differ in their conclusions.

*Uncle Sam gouges the wealthy, and showers the poor in subsidies and welfare programs - what’s to complain about, if you’re on the receiving end? *

:slight_smile: Gee, almost makes you want to be poor so you can get all those great subsidies, doesn’t it? This sort of claim comes across as kind of funny, because it completely ignores the fact that even after we’ve finished “gouging” the wealthy and “showering” the poor, the wealthy are still orders of magnitude better off. In other words, even with “subsidies and welfare programs”, life for the poor is generally full of hardship and struggle, while even with “gouging” taxes, life for the wealthy is still full of privilege and luxury.

In other words, the rich can quite easily afford to be taxed more than the poor. And our general moral consensus is that the moral status of taxation depends not just on the absolute amount of the tax, or on the ratio of tax to income, but also on how easily the taxed person can afford the tax.

This seems to me like a much more reasonable and sensible moral standard than simply requiring that everybody should make the same financial contribution, either as a dollar amount or as a percentage of income. (Added in preview: this is a response to Apos’s question too.) If a certain percentage of income makes the difference between survival and privation to a poor person, while the same percentage makes only a negligible difference in the standard of living of a rich person, then there’s nothing particularly “fair” or “moral” about taxing them the same percentage.

Apos: What bothers me is that redistributionists have absolutely no measure for exactly how much it is “moral” to take, and why.

Well, if the moral justification of progressive taxation is based partly on need and affordability, obviously there is no one figure that’s going to apply across the board. What people need and what they can afford inevitably change with time and circumstances. But personally, I’ve never heard of any progressive-tax supporter (at least, one who wasn’t advocating outright socialism) complaining that the 1950’s top marginal tax rate of 91% was too low, so perhaps you can think of that as a loose upper bound. :slight_smile:

That is, if carpenters didn’t have all those benefits, if their jobs and educations and so on were much harder and more expensive… the “rich” would simply have to pay them more for their work, covering in proportion all the hidden costs of production, transport, education, etc.

That doesn’t seem to make sense: a rich employer isn’t going to pay a future carpenter for the education he’ll need in order to become a carpenter. If we don’t provide benefits to the non-rich from tax revenues, how do we ensure that the non-rich get the basic standard of living that enables them to do the jobs, and consume the products, that contribute to the wealth of the rich?

What you describe as “efficiency” in paying for only what you want, only when you want it, could also be termed a “race to the bottom”. Sure, we can say that we won’t use tax revenues to support universal education, and instead the carpenter and other workers will charge enough for their work to cover the education of their children. But then the workers with few or no children will undercut the price of workers with several children, and the latter then have to cut their price in order to stay competitive. Result: the employers save money, but there’s less money for educating workers’ children. And so on. Will workers in such a “race to the bottom” continue to be adequate producers and consumers, or will the growing poverty of the non-rich adversely impact the rich?

Well, sometimes not having a firm answer to a question is much better than a firm one that is wrong! I admit that there is appeal to simple ideas like “Everyone should pay the same percentage of their income in tax.” I just happen to think it is an idea that is not only simple but also simplistic and unjustified.

I wish I knew how to calculate the most just tax system. Alas, I don’t. But, that doesn’t mean I don’t have a strong opinion about what direction we need to go in. That to me is quite obvious. And, it is certainly obvious what direction we should not be moving in because, as I have said before, I simply don’t find the argument that “inequality isn’t increasing fast enough” (to paraphrase the Billionaires for Bush or Gore parody website) at all compelling.

I don’t find this a very compelling argument. While existentialism may be a cool philosophy, I can tell you that our society’s inequality is not going to change significantly if I alone make such a contribution. That’s why we have the political process…to make decisions on collective actions in cases where individual actions will not do the trick!

My heart really bleeds for those poor suffering rich people! [I guess that makes me aa compassionate conservative." :wink: ] And, boy, I just really aspire to being one of those lucky poor folks!

By the way, have you not heard of “corporate welfare” and other such things? Even the Cato Institute talks about that!

—I don’t find this a very compelling argument. While existentialism may be a cool philosophy, I can tell you that our society’s inequality is not going to change significantly if I alone make such a contribution—

Well, I wouldn’t expect an argument that suggests you should be putting your money where your mouth is would be very compelling to you.
But this has nothing to do with existentialism. You have argued that you can afford to pay more. You have argued that you SHOULD have to pay more. But the fact remains, even if other aren’t yet forced to pay, you paying more would still help fund what you think you should be forced to fund. You are currently shirking the very duty you demand of everyone else.

That suggests to me that you aren’t seriously considering the cost of increased taxation: since obviously it’s high enough that you’d make all sorts of excuses as to why you aren’t paying more voluntarily when you have the chance.

—But, that doesn’t mean I don’t have a strong opinion about what direction we need to go in.—

This is the kind of opinion I find a little unbelievable. You admit you have no idea what the goal is, and then claim that you know the proper direction. But you can’t possibly know the direction unless you have some sense of what the goal is: shown some real consideration for what the costs and benefits of a policy are. There is always too much of even a good thing.

—My heart really bleeds for those poor suffering rich people!—

Sure: they have stuff: so that means it’s okay to take it and not worry too much about having done so!
What winning moral logic.

Apos:

Okay, let me elaborate. I do put a reasonable amount of money where my mouth is (last year >12% of my spending [not including what I paid in income and payroll taxes] went to charity / advocacy groups). But, it is a logical fallacy to say that because I think the government could/should tax me more that I should unilaterally give my money to them. It makes more sense to me to contribute that money to those pushing for policies that I think would make society more just.

[By the way, another thing that I do…well, part of that 12%…is that I imposed a 100% gas tax on myself because I think that gasoline is underpriced and that’s a bad thing. Again, I decided that since the government is not collecting this money, I would choose to give it to environmental advocacy groups instead.]

Who says I don’t consider the costs and benefits? And, yes, I realize there can be too much of a good thing. But, my point is that it is rather obvious from the data that we aren’t there yet, for my concept of a just society. I should also note that we don’t live in a vacuum here. There are other countries that we can learn from and I have actually visited, or even lived in, some of them…which gives one a much different impression than listening to conservative commentators talk about them.

The moral logic is that we live in a society that is highly interactive and collective and I think that everyone should share to some reasonable degree in the fruits of that society. And, I also think that when the society has obligations that must be met, it is generally preferable to meet them by taking from those who will suffer far less and who have clearly benefitted handsomely from our society than those who will suffer far more and have not seemed to have benefitted.

[Over the last 30 years, there are a few people who have benefitted a huge amount from the growth in our GDP, the median who have rather very little, and the worst off who have basically not benefitted at all.]

Obviously, there are other factors to consider too, such as providing people with incentives to work hard and be productive and allowing people to benefit from their hard work and natural talents. However, I don’t think our levels of taxation of the wealthy have reached the point of discouraging that and, in fact, there are some interesting arguments in that an extreme “winner-take-all” society such is what ours seems to be evolving to actually leads to a lot of inefficiency and wasteful use of resources.

I just found the answer to your question. On page 35 of the book Showdown at Gucci Gulch we find this:

Mondale had just delivered his line at the Democratic convention in which he said, “Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did.” Mondale then turned to (then) House Ways and Means Committee Chairman Dan Rosentenkowski and said, “Look at’em, we’re going to tax their ass off.”

So, if you still have an ass, you’re not taxed enough yet.
:rolleyes:

I think this sums up the Democratic philosophy on taxes quite nicely.

Okay…let’s turn the question around. To those on the other side, I ask:

What level of inequality is so extreme that you would support more progressive taxation or some other reforms in order to reduce it?

Good question, but I’m not sure extreme inequality can occur under capitalism without some extreme authoritarian entity facilitating it. The extreme concentration of wealth that you worry about is quite useless unless spent. Spending spreads it around. Capitalism is a pretty good self-regulating system in that regard.

I would also add that ideas and creativity have substantial value. Anyone can have a good idea, even the non-wealthy. A capitalist, by definition, will use some of his wealth to create more wealth, for both himself and the idea-guy.

Anti-capitalists can never seem to grasp the expanding pie thing and what that means to all people, not just the wealthy.

Well, I think your claim that extreme inequality can’t occur under democratic capitalism flies in the face of the current realities. Do you not consider the current state of wealth and income distribution in the U.S. to be pretty extreme?

And, as the Krugman article I referenced earlier in this thread points out, the expanding pie thing doesn’t seem to really be working either. Or, to put it another way, there are a few people getting almost all of the expanding pie and a lot of people getting mainly the crumbs. [In fact, I believe that by some measures at the bottom things have gotten worse.]

This isn’t a statement that capitalism is inherently bad…But that left largely unfettered and unregulated, it does in fact tend to lead to extremes of wealth and poverty.

Just to expand on my reference to Krugman, here is Krugman’s summary of your expanding pie argument as I see it:

For Krugman’s analysis of this (which is too involved to do justice with sound bites from the article), see the article itself: http://www.nytimes.com/2002/10/20/magazine/20INEQUALITY.html?pagewanted=7&ei=1&en=18449504d20bd065&ex=1036345863
[I linked you into the middle of the discussion, but you can go back and forward from there.]